Hay, corn prices putting some dairies out of business

June 4, 2012

ALBUQUERQUE — A dramatic increase in the price of hay and corn and low milk prices are putting some New Mexico dairies out of business.

Dairy Producers of New Mexico President Luke Woelber tells the Albuquerque Journal that he knows of five dairies in the eastern and southern part of the state that have closed in the face of feed costs that have doubled in the past few years.

The higher feed costs combined with higher fuel and transportation costs means that, for the dairies, the cost of producing a gallon of milk is greater than the selling price.

And dairies' inability to raise prices in the face of global competition and federal price controls means their higher costs haven't shown up at the grocery store.

A ton of hay sold for about $160 in late 2010, said Jerry Hawkes, a professor in New Mexico State University's agricultural economics and agricultural business department.

Today, large purchasers of hay, like dairies, pay about $300 a ton. Hawkes said he has heard of the best quality hays selling for up to $350 a ton.

"It's a scary time right now," said Beverly Idsinga, executive director of the Dairy Producers of New Mexico.

New Mexico is home to around 150 dairy farms, with 320,000 dairy cows.

Walter Bradley, government and business affairs director for Southwest Council of Dairy Farmers of America, said closures involved a pair of dairies in Las Cruces and the Carter Milk Factory near Portales. A person who answered the phone at the Carter residence in Portales declined comment.

Bradley figures some more of the approximate four dozen dairies in Curry and Roosevelt counties might soon join the ranks of closed dairies.

"We're not past this by any stretch of the imagination," Bradley said. "This is going to be not a good month."

Woelber said dairy cattle diets include corn, cotton-based feed, supplements and other components.

The cost of feeding a dairy cow in New Mexico two to three years ago was between $6 and $7 per hundred weight of milk the cow produced — about 12 gallons. Today that cost is between $12.50 and $14 per head, he said.

Milk is selling for around $16.90 per hundred weight. Woelber estimated that once other operation costs are added, the average New Mexico dairy is losing about $2 or $3 per hundred weight of milk.

Woelber milks about 2,500 cows at his own, Belen's H.A.W. Farms, and has sold about 250 head for slaughter to lower costs. That, Bradley said, is a key factor in dairies currently producing more milk than last year — a 4 percent increase, the USDA reported between April 2011 to April 2012. Bradley said the cows sold to slaughter tend to be the older head, and the head left behind tend to produce more milk.

Woelber said dairy farmers are trying to lower costs by feeding lower quality hays — grass instead of alfalfa, for example. The trade-off is that cows fed on lower quality hays produce less milk.

Sooner or later, milk supplies likely will shrink in response to the belt-tightening, and prices will increase.

Woelber doesn't even try to guess when that might be.

"You hope you have enough money saved from the last good times to make it through the bad times." he said. "The business model was you would lose money for a few months. Now you have to have a war chest to make it through."

That doesn't mean, Bradley said, that there's an opportunity to capture more of the market for bigger dairies who can wait it out.

"The advantage will go to the ones who have less debt," Bradley said. "It doesn't matter, large or small (dairy). This is pure economics."